Greedflation and its counter arguments.

Greedflation?refers?to?price inflation?caused?by?corporate greed?for?high?profits. Progressives?in?the?United States?have?accused?corporate?greed?as?a major?reason?for?the?historically?high price?inflation?in?the?U.S.?since?the pandemic.?The?proponents?of?the?idea?of greedflation?argue?that?corporate?profit margins?have?risen?significantly?since?the pandemic?even?though?the?larger economy?has?struggled?and?that?this?has contributed?to?high?inflation.?They contend?that?the?U.S.?corporations?have allegedly?increased?the?prices?of?their goods?by?more?than?what?was?necessary to?compensate?for?higher?input?costs caused?by?supply chain?bottlenecks.?

Many economists, however, have questioned the validity of the argument that corporate thirst for higher profits is the cause behind inflation. They see greedflation as a political narrative built around the issue of inflation rather than as a serious economic explanation of high inflation since the pandemic. Economists?who?disagree?with?the greedflation?narrative?argue?that businesses,?whether?they?are?large corporations?or?small?companies,?cannot arbitrarily?set?prices?as?many?people?seem to?erroneously?believe. Businesses?set prices?for?their?products?based?on?what consumers?would?be?willing?to?pay?for these?products.?In?other?words, businesses?cannot?force?consumers?to?pay certain?price?for?their?goods;?they?can only?try?to?gauge?the?maximum?price?that consumers?would?be?willing?to?pay?and set?prices?accordingly?in?order?to maximise?their?profits.?If?a?business?sets the?price?of?its?product?too?high,?this would?cause?its?goods?to?go?unsold?and the?business?would?have?no?choice?but?to lower?the?price?of?its?product?to?clear?its unsold?stock.

The primacy of consumers?

Moreover, inflation refers to a general rise in the price level (meaning a widespread rise in the prices of goods and services across the broader economy) rather than in the prices of individual goods and services. The only way corporations can influence the overall price level is by reducing the supply of goods and services. There is, however, no evidence to suggest that there has been a deliberate reduction in the output of U.S. corporations recently. Even if corporations cut down their output, the drop in output is likely to be temporary as other suppliers would rush to meet the demand.?

It is thus extremely unlikely that U.S. corporations caused prices to rise across the board in recent years by somehow adversely influencing the aggregate supply of goods.?

The current bout of high inflation in the U.S., most economists believe, is much better explained by the U.S. Federal Reserve’s expansionary monetary policy during the pandemic which put more money in the hands of U.S. consumers, who in turn have bid up the prices of goods and services in the economy. The U.S. money supply rose by a whopping 40% in the wake of the pandemic and this combined with supplychain bottlenecks caused by stringent lockdowns led to high inflation.

Greedflation has been compared to other theories of “costpush” inflation which attribute inflation to a rise in input costs. For example, in the past, a rise in the wages demanded by workers has been blamed for the rise in the prices of goods and services. In the case of greedflation, it is the rise in the corporate thirst for profits that is seen as a cost that is driving up prices.?

A criticism of the costpush theory of inflation has been that it ignores the fact that the cost of producing any good is itself determined indirectly, but ultimately, by consumers. It should be noted that the cost of inputs, which can be used towards different alternative ends of society, is determined by competitive bidding in the market